What Does ‘Under Contract’ Mean on a Home Listing?
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Richard Haddad Executive EditorRichard Haddad is the executive editor of HomeLight.com. He works with an experienced content team that oversees the company’s blog featuring in-depth articles about the home buying and selling process, homeownership news, home care and design tips, and related real estate trends. Previously, he served as an editor and content producer for World Company, Gannett, and Western News & Info, where he also served as news director and director of internet operations.
Sometimes you come across a home for sale that checks off every box on your list, but the listing status says that it’s “under contract” or “sale pending.” Crestfallen, you move on and hope you’ll find an equally amazing home. But what does “under contract” mean in real estate? Can you still make an offer on a home that’s “under contract”?
In this post, we’ll explain the “under contract” listing status tag. We’ll also share expert insights on how this tag and others might impact your homebuying plans.
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What does ‘under contract’ mean?
“‘Under contract’ is more or less a meeting of the minds,” says Julie H. Kaczor, a top-selling agent from Illinois with 30 years of experience. “It means the buyer and seller have agreed to the terms of the contract, such as the price, the closing date, the personal property, the earnest money, tax preparation, and contingencies.”
It sounds pretty straightforward, right? But Kaczor explains that while “under contract” indicates that the seller has accepted an offer from a buyer, the deal is not yet final. In most cases, there are contingencies in the buyer’s offer that need to be cleared before the transaction is moved to the more solid “sale pending” status.
What contingencies might be attached to ‘under contract’ listings?
Oriana Shea, a top-rated agent in California who has been helping homebuyers for 26 years, says that, depending on local multiple list service (MLS) rules and where the property is located, a listing might actually be tagged as “contingent” rather than under contract. “Both indicate that the buyer and seller have come to a ratified agreement,” she explains.
To fully understand what “under contract” means, let’s take a look at some of the contingencies that might be attached to such a listing.
There are four common types of real estate contract contingencies. After you open escrow and the buyer submits a good faith earnest money deposit, some or all of the following contingencies may need to be addressed:
- The financing contingency will appear in contracts where a buyer needs to finalize a mortgage loan to purchase the home. The buyer may even be pre-approved by their lender, but there’s still work to be done before the financing officially comes through.
- The appraisal contingency is a clause that gives the lender the opportunity to have an appraisal done and ensure the amount the buyer is offering for the house is fair market value. If the value comes back under the contract price, and the seller won’t come down on price or meet the buyers halfway, the buyers can walk away from the deal.
- The inspection contingency allows time for a thorough inspection by a third party to catch any issues — minor and major — with the home that the buyer should be aware of. For example, if the inspection reveals the roof needs to be fully replaced, the buyer may ask the seller to lower the price or have it replaced before proceeding. If both parties can’t reach an agreement, and the issue is large enough, the buyer can choose to back out of the agreement.
- The home sale contingency says the buyer will purchase the house only once they’ve sold another property they own. This is common when the buyer needs equity proceeds from their existing home to buy their new home. The first three contingencies on this list are almost always in a purchase contract, while this one is a little more of a wild card. It creates uncertainties, especially for anxious sellers.
If all the conditions in a purchase agreement are met, the sale can move forward. Alternatively, if the conditions aren’t met, the house could go back on the market.
What are some other home listing status tags?
Very few types of consumer transactions will go through as many distinct phases as a real estate deal. When you go to buy a book on Amazon or a pack of razors at the drugstore, the item is for sale, and then it’s sold (or purchased) by a buyer. The “in-between” stages aren’t necessary because you don’t involve a complex structure with decades of history like a home, nor do you involve a third-party lender.
However, with a property sale, your listing can move through different stages:
- Active: A home is on the market, accepting showings and offers.
- Active under contract: A seller has signed with a buyer, but it’s not a done deal.
- Active contingent: As noted above, this is another way to say a home is under contract in the early stages.
- Sale pending: Depending on where you live, contingencies have been cleared, or it’s another way to say the seller is optimistic — even if they are still working out the buyer contingencies.
- Sold: This status indicates the sale has been fully closed.
With so much money on the line and various interests involved in a home sale, it takes time to check all the boxes specific to the purchase contract. The pace and caution applied can be frustrating for both buyers and sellers, which is especially true for most financed deals. Sellers often give preference to buyers who are able to pay cash for a home, which can streamline the closing process with the elimination of the appraisal and financing contingencies.
In short, the contingencies and status labels we’ve reviewed illustrate why “under contract” isn’t the same as a done deal.
‘Sale pending’ is a more sure status
Once the offer terms are agreed upon, and the contingencies are met, the transaction is now pending. In most cases, this means the home is officially off the market, the listing is often pulled from real estate listing websites.
While the sale is more certain with this status tag, it can still be a waiting game until you can close. Kaczor explains that this is all part of the “due diligence” stage — a period of time between when the offer was accepted and the closing. It is intended to allow the buyer time to complete important safeguard tasks, such as the appraisal, title search, and home inspections.
Common reasons a closing might be delayed
- Issues with the home’s title
- An instrument survey reveals a property dispute
- The buyer’s lender delays or denies the loan
- A discrepancy with the property’s appraised value
- A new issue is revealed from the home inspection
- A missing or incomplete required disclosure form
- An unexpected issue arises during the final walkthrough
Can I make an offer on a home that’s ‘under contract’?
Yes, it’s still possible to make an offer on a property that’s listed with the “under contract” status. If any of the contingencies are not met, and the deal falls apart, the house may become available again.
During the initial “under contract” or “contingent” phase, a seller might accept backup offers and continue to show the home. Such active contingent listings may appear with the status tagged as “Active under contract” or “Active with contract.”
“‘Active with contract’ is like a house sale contingency,” Kaczor explains. “It means the seller has accepted a purchase offer, but they can still look at — and even accept — another offer.”
For sellers who are not fully confident in the buyer’s ability to clear contingencies, a backup offer is like having an ace in their back pocket. According to the National Association of Realtors (NAR) most recent Realtors® Confidence Index Survey, about 6% of purchase contracts are terminated once they’re accepted.
Shea says that if she suspects something going wrong with buyers, she’ll encourage other inquiring agents to show the home and make a backup offer.
Can I get more time if a contingency hasn’t been met?
If some contingencies haven’t been met, the buyer’s agent can ask for an extension to the contract. Kaczor notes this is usually because the lender or another party in the transaction needs additional time to button everything up.
“Then the question is: Why?” Kaczor explains. “The buyer can call up and say, ‘Hey, I want to extend my finance contingency at my lender’s request because they couldn’t process the paperwork.’”
She provides another example: “Suppose there’s a contingency on a house sale, and they’re supposed to close in 60 days, but the buyer couldn’t sell their home within that time. The buyer can ask for a 30-day extension and continue to try to sell.”
How can I avoid making a contingent offer?
One of the best ways to remove a home sale contingency from your offer is to take advantage of modern “Buy Before Your Sell” programs. Innovative real estate companies like HomeLight are making it easy to use the equity from your existing home to make your homebuying offer more appealing. Such programs also streamline and simplify the entire buying and selling experience.
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Partner with an expert to make a strong offer
HomeLight can connect you with the most experienced agents in your market. We partner with the nation’s top-rated real estate experts who understand how to negotiate and make the strongest offers possible so you can reach your homeownership goals.
You can also ask your agent about HomeLight’s Buy Before You Sell program and how it can empower you to make a non-contingent offer by unlocking the equity in your current home.
With the right home and the right expert by your side, you can be more certain that the buyer who has your dream home “under contract” is you!
Writers Evette Zalvino and Catherine Conelly contributed to this story.
Header Image Source: (vkyryl/ Depositphotos)
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